Do or Die – Currencies Approach Key Levels

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Market Drivers for April 11, 2013
AU labor data misses but Aussie shrugs it off
Kuroda notes that inflation target is flexible tempering rally in USD/JPY
Europe 0.18% Asia 1.96%
Oil $94.48/bbl
Gold $1559/oz.

Europe and Asia:
AUD Unemployment Rate 5.6%
AUD Employment Change -36.1K vs. -6.7K eyed
AUD Consumer Inflation Expectation
AUD Full Time Employment Change -7.4K vs. 19.3K
AUD Part Time Employment Change -28.7K vs. 54.7K
JPY Machine Orders 7.5% vs. 6.9%
NZD Business NZ PMI 53.4 vs. 56.3
EUR German CPI

North America:
USD Initial Jobless Claims 8:30
CAD New House Prices 8:30

It’s been a relatively quiet night of trade in the currency markets, but the commodity block enjoyed further buying with both kiwi and loonie setting fresh highs, while Aussie managed to completely shrug off a weak employment report.

The Australian labor numbers missed their mark badly with employment shrinking by -36.1K versus -6.7K eyed while the unemployment rate rose to 5.6% from 5.4% prior. The data was horrid throughout with full time numbers declining by -7.4K versus a 19.3K rise last month. The news prompted several analysts to call for further RBA rate cuts in the second half of the year and cause Aussie to drop 50 points in the aftermath of the release.

However, the downdraft did not last long as buyers quickly materialized and the pair took out yesterday’s highs in morning European trade. The markets are clearly taking this month’s miss in the labor numbers in stride, especially given the massive upside surprise in last month data. Averaged out over two months the Australian employment is still up by more than 30K new jobs and that fact suggests that the RBA is likely to remain stationary for the time being.

As we noted yesterday the AUD/USD is once again the king of the carry and that dynamic continues to prop up the pair despite any near term disappointments in the fundamental data. However, whether this trend can continue will depend largely on the USD/JPY flows. That pair has stalled ahead of the key 100.00 barrier and today’s comments by BOJ chief Kuroda capped the rally even further.

In talking to financial executives Mr. Kuroda stated that the 2% inflation target was flexible backing away from his earlier uber dovish stance that the target was absolute. That rhetoric caused the markets to reassess BOJs commitment to its policy of non conventional measures and resulted in USD/JPY backing off it session highs.

The pair however remains well bid as it continues to be supported at 99.50 and then the 99.00 level. Todays North American calendar is relatively barren with only the weekly jobless claims on the docket. Tomorrow’s US Retail Sales may be the more likely event risk to either push the USD/JPY through the 100.00 barrier or have it be rejected at that level.

Still the longer the pair remains dormant the greater the chance that it will squander the momentum built up over the past several days and if it drops through the 99.00 support it would signal that a near term top may be in place. That is turn could trigger some profit taking in the yen crosses and unwind some of the massive commdollar gains seen this week.

Boris Schlossberg
Managing Director

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